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Using the compensating and equivalent variations to define the Slutsky Equation under a discrete price change

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Author Info
Ambrose Leung () (Bishop's University)
Robert Sproule () (Bishop's University)

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Abstract

In our experience, all textbook presentations of the Slutsky Equation under a discrete price change use a compensation scheme based on the compensating variation. Our students have sensed this convention is arbitrary in that they have asked, why consider this compensation scheme, and not one based on the equivalent variation? The present paper outlines how one might address this matter analytically, and then discusses how our findings provide a new insight into the Giffen Paradox.

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File URL: http://economicsbulletin.vanderbilt.edu/2007/volume4/EB-07D00001A.pdf
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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 4 (2007)
Issue (Month): 11 ()
Pages: 1-9
Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Handle: RePEc:ebl:ecbull:v:4:y:2007:i:11:p:1-9

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Postal: Economics Bulletin, Department of Economics, 414 Calhoun Hall, Vanderbilt University, Nashville TN 37235, USA
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Related research
Keywords: Compensating Variation Equivalent Variation Giffen Paradox Slutsky Equation

Find related papers by JEL classification:
D0 - Microeconomics - - General
A2 - General Economics and Teaching - - Economics Education and Teaching of Economics

References listed on IDEAS
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  1. Dougan, William R, 1982. "Giffen Goods and the Law of Demand," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 809-15, August. [Downloadable!] (restricted)
  2. Berg, Morten, 1987. "Giffen's Paradox Revisited," Bulletin of Economic Research, Blackwell Publishing, vol. 39(1), pages 79-89, January.
  3. Peter C. Dooley, 1983. "Consumer's Surplus: Marshall and His Critics," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 26-38, February. [Downloadable!] (restricted)
  4. Christian Weber, 2002. "Did Pareto discover income and substitution effects? On an interpretation suggested by Hutchison," Economics Bulletin, Economics Bulletin, vol. 2(2), pages 1-6. [Downloadable!]
  5. Christian Weber, 2002. "Linearity, Slutsky symmetry, and a conjecture of Hicks," Economics Bulletin, Economics Bulletin, vol. 4(12), pages 1-5. [Downloadable!]
  6. Dooley, Peter C, 1985. "Giffen's Hint?," Australian Economic Papers, Blackwell Publishing, vol. 24(44), pages 201-05, June.
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This page was last updated on 2008-7-12.

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